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Lord Grantley: My Lords, it is only rarely that I seek to inflict my views on your Lordships' House. I am tempted to do so on this occasion owing to the quite extraordinary nature of the debate. In all other member states of the European Union the governments put forward the argument for joining the EMU as expressly political. In their minds, there is no pretence that one should join the EMU for purely economic reasons. For some reason, the United Kingdom appears to be the only member state in which the political aspect of EMU is ignored and arguments are put forward for purely economic reasons. Actually, so far as I can see, they are put forward for no reasons at all.

In today's debate, it has been remarkable how few arguments have been advanced for the idea that the economy of the United Kingdom will benefit through membership of the EMU. The nearest suggestion I heard came from the noble Lord, Lord Peston, that in the past economic policy in the United Kingdom, in particular monetary policy, was not well conducted, whereas in other European countries such policy has been better conducted. The noble Lord is right in saying so.

However, that is not an argument for saying that that relative comparison is bound to endure for the future. On the contrary, we see significant changes in the conduct of economic policy, specifically monetary policy, in this country as in other European countries. We in the United Kingdom are now enjoying the benefits of the lowest long-term interest rates on gilts for many a year, reflecting the fact that our economic policy is being well conducted. I congratulate Her

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Majesty's Government on their role in this matter. It is due to the Government's abandonment of socialism in its economic form that we are currently enjoying such a high quality of economic, and specifically monetary, policy. There is no reason for pessimism or a belief that in the future if we stay out of EMU our economic policy will necessarily be conducted worse than that of the European Union as a whole.

However, because we are reluctant to acknowledge that the main motivation for EMU is the desire on the part of other member states to have a political union, its proponents in this country are forced to produce an ever increasingly fantastic series of assertions as to why it is in our interests to join. One of the assertions made by a speaker earlier today was that if the amendment were passed the markets would punish us. The situation happens to be precisely the opposite. Whenever during the past 12 months the Government looked as though they were tending towards joining the EMU, sterling fell in relation to other currencies. At moments when it looked as though the Government were backing off joining the EMU, sterling rose. That shows that the markets believe that sterling is a safe haven in comparison with a relatively weak euro. Generally, the markets believe that the euro will not work, and I very much share that opinion.

The other assertion which I thought was quite extraordinary was that the economies of the other member states of the European Union are converging as demonstrated by the cases which they put forward recently to suggest that they have all satisfied the Maastricht criteria. I do not know whether I am living in a different world, but what I thought was particularly noticeable about the cases which the countries recently advanced was that for the most part they were based on fudge. We heard fudge from the Germans, fudge from the French and fudge from the Italians--and they are only the best known instances. It is deplorable that the countries were able to go to the European Commission in advance in order to obtain pre-clearance of the basis upon which they fudged their figures.

That has been exposed most noticeably by the directors of the Bundesbank in relation to the fudge by Germany. If anyone is entitled to be listened to with credibility on the subject of the economic consequences of EMU, I suggest that it would be the directors, and in particular the former directors, of the Bundesbank. When it comes to talking about sound money, they have more credibility than any other set of authorities within Europe. We know very well that the opinion of the members of the Bundesbank board is that from an economic standpoint EMU would be a disaster.

Surely, the case against our joining the EMU is simple. It is that we would forgo the ability to set interest rates with reference to our own conditions. To be able to do that is merely one of the aspects of political independence. It is a pearl of great price. Why should we throw away that pearl of great price without any obvious reason for doing so? The noble Lord, Lord Tugendhat, introduced a red herring by saying that in today's global economy no country can operate economically independently of others. That is true, but the analogy is not precise. What we ought to have for

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ourselves is the same degree of independence to set our own monetary policy with reference to our own conditions as, for example, the authorities of Switzerland have in setting interest rates to suit Swiss conditions or as the authorities of Singapore have in setting monetary policy to suit the interests of Singapore. Switzerland and Singapore happen to be relatively small countries, but the noble Lord's suggestion that small countries find it difficult to set suitable monetary policies to suit their own purposes is destroyed by the example of those small and successful countries which have set monetary policies to suit their own interests. There is no reason why we should not do the same.

If we were to join the EMU we would find that it would be the merest coincidence if the interest rates referrable to the European Union as a whole were appropriate for ourselves. It is almost certain that we would find that interest rates would be either too high or too low. The noble Lord, Lord Howell, mentioned the dangers for individual member states finding that the interest rates applicable to them post EMU are too high or too low. In the case of interest rates being too low there would be boom followed by bust and in the case of interest rates being too high there would be recession, followed by depression, followed by the possibility of a great deal worse.

I wish I were a prophet. I wish I could see through to what will be the ultimate consequences of EMU going ahead. But I believe that the apocalyptic scenario is not necessarily to be dismissed. I cannot see the stability pact working. The idea is fantastic that, when one is in a situation of depression, when one cannot keep the fiscal deficit below a stated proportion of GDP, then one will have to pay fines. By definition, in a state of depression one's fiscal deficit will be on the increase and one will need to reduce taxes to take up the strain of not having an independent monetary policy to suit one's own conditions.

6.30 p.m.

Lord Grenfell: I am grateful to the noble Lord for giving way, but I do not know whether, by chance, he had in mind some remarks I made earlier. Once again, I should like to emphasise that there is no question of fines being imposed on a country which has gone deeply into depression--asymmetric shocks possibly produced by external factors. To me a deep depression would mean a loss of about 2 per cent., if not more, of output. It just will not happen. There will not be fines.

Lord Grantley: I sincerely hope that the noble Lord is right. But I wonder whether there are any circumstances under which any member state in future will consent to paying a fine as required by the conditions of the stability pact. To me, it seems to be politically unreal. I know that the noble Lord has vast experience in those matters of the political and diplomatic realities or otherwise. But to my mind, it simply lacks credibility and I believe that the markets share that view.

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I conclude by saying that if I were Her Majesty's Government, I should wish to make a commitment that we would never ever join EMU because it is completely contrary to both our political and economic interests. For that reason, I support the amendment.

Lord Ashbourne: I rise to support these amendments moved so ably and cogently by the noble Lord, Lord Shore of Stepney. I am not an economist and I shall not detain the Committee long. I wish to make one point and it is in relation to what I shall describe as the "pensions bombshell" or, put another way, what the House of Commons Social Security Committee, under the chairmanship of the right honourable Member for Birkenhead, Mr. Frank Field, described as the "pensions timebomb".

The UK has a massive private pension fund of £600 billion, more than the combined total of all the other member states. In round figures, in the UK our pensions liabilities represent 19 per cent. of GDP; in France, they represent 98 per cent. of GDP; in Italy, they represent 113 per cent. of GDP; and in Germany, they represent 139 per cent. of GDP. A single currency will result in harmonisation of all taxes in the EU, so European Union pensions are likely to cost the UK taxpayer no less than £1.2 trillion, increasing our national debt from £5,000 per head of population to £30,000 per head of population.

Jacques Delors has declared that,

    "with a single currency, all members of EMU would become liable for debts of any single country of that union".

Continental politicians seem to understand that, but we must ask whether Her Majesty's Government understand it. I ask the noble Baroness who is to reply on behalf of the Government whether she will explain to the Committee in the clearest possible terms how the Government intend to fund that enormous pensions deficit.

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